CLARKONOMICS: We are in unusual situation right now in the United States with four big problems on the table.
- Europe is in a heap of trouble. Many people know that Greece has been an international basket case, but there’s growing concern about Spain, Italy, Portugal and Ireland too. The question now is do the stronger European nations have the wherewithal and desire to prop up the weaker members of the European nation? That’s an unknown.
- We in the United States went through a slow motion drama for the past few months about raising the debt ceiling. The very fact that we let it go down to the wire signaled to the world that we didn’t take paying our debt seriously. And that really undermined world confidence in our country.
- The papered-over agreement about raising the debt ceiling does not address the long-term issues and commitments to spending that we don’t have a way to pay for. The math simply doesn’t work. Even if you taxed the wealthy at 100% of their income, you still wouldn’t have enough money to fulfill the obligations we’ve promised our citizens. Not to mention that we don’t have any plan from either political party to get back on solid financial ground. That alone has had a great deal to do with the Standard & Poor’s downgrade of U.S. debt.
- There is more and more concern that we may be headed into a second recession in a relatively short time period without having had any recovery in between.
So that’s a world of worry, isn’t it? Europe is a mess, we’re a mess and individuals are afraid to spend right now. Tightening the purse strings on an individual level is good for the long term, but not for the short term. In fact, it makes recession more likely in short term.
At the same time, big corporations are sitting on the largest piles of cash just about ever, but they’re not willing to spend with all the uncertainty in the world and the dysfunction in D.C. It’s hard for a business to get the lay of the land, and therefore businesses can’t have the predictability and stability they need for them to engage in capitalist risk.